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Yes, we’re in a bubble

By on March 28, 2011

A couple of months ago, I wrote a piece in the Wall Street Journal arguing that valuations in the social games space were “frothy”, but we weren’t in a bubble yet.

I’ve changed my mind (and written another post in the WSJ about it).

It’s not just me. The recent announcement that Color, Inc, a company who make an app for sharing photos with everyone within 100 feet of you, as well as with your social graph, raised $41 million before they had a product in the AppStore, set tongues wagging (or is that eyebrows raising?)

Angry Birds logo

For me, it was the news that Rovio, makers of Angry Birds, had raised $42 million from Accel and Atomico. The company has 2% hit rate, a single franchise and didn’t need the money. It seems like an odd deal to me.

So I think we’re in the bubble. In the Journal, I give the following advice:

  • If you are an investor, look for companies whose success is predicated on building long-term relationships with paying customers, not hoping for a lucky break. Separately, look for companies who will benefit from rising customer acquisition costs, not suffer from them.
  • If you are an entrepreneur, get in there. Accept that customer acquisition costs are rising and focus on retaining your customers and offering them great value from your games. Focus on ensuring that your users can play your games for free, can easily spend £1 and can possibly spend £100.  If you are going to have to buy users (and you will) make sure that they are profitable for you.

The rules have just changed. Time to take advantage of them. And as I said in the post:

Now excuse me, I’m off to raise some money for my database of games-making freelancers.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: